On November 13, 2014, the Supreme Court of Canada released a landmark decision in Bhasin v. Hrynew, which recognizes a general organizing principle of good faith in contract law and establishes a new duty of honest performance.

An Osler Update on the substantive issues in Bhasin is found here.

The case contains an interesting point on appellate practice. The Supreme Court, somewhat stepping outside of its usual role, assessed and awarded damages for a breach of the new duty of honest performance in the absence of a finding on damages by the trial judge.

It is beyond the scope of this blog to go into detail on the facts of the case. Suffice it to say that the appellant complained that he had lost the value of his business as a result of dishonest conduct by his contractual counter-party.

In the courts below, the Alberta Court of Queen’s Bench found that it was an implied term of the agreement between the parties that decisions about whether to renew the contract would be made in good faith. It found that Can-Am acted dishonestly with Bhasin in the period leading up to the non-renewal. The Court of Appeal found that there was no implied term of good faith in the context of an unambiguous contract containing an entire agreement clause. On appeal to the Supreme Court, the issues were whether the common law imposes a duty on parties to perform contractual obligations honestly and, if so, whether Can-Am and Hrynew breached that duty. The Supreme Court answered both questions in the affirmative.

Since Can-Am had breached its duty of honest performance, the Court concluded that it was liable for damages calculated on the basis of what Bhasin’s economic position would have been had Can-Am fulfilled its duty. In an unusual step, the Court assessed the damages in the absence of a finding by the trial judge on damages. The Court considered that the trial judge had made sufficient findings of fact for it to assess damages.

The trial judge had found that but for Can-Am’s dishonesty, Bhasin could have acted so as to “retain the value of his agency.” The trial judge was aware of the difficulties associated with selling Bhasin’s business given the level of control that Can-Am had over enrollment directors. Taking these limitations into considerations, the trial judge found that the value of the business at the time of the non-renewal of the agreement was $87,000. The Court considered these findings sufficient for assessing damages. The Court further noted that there was no suggestion in the parties’ argument that the figure of $87,000 should be reassessed. As a matter of the facts, before the Court of Appeal, Can-Am submitted that if damages were to be awarded, they should be assessed at the value of the business at the time of the expiry of the agreement and noted the trial judge’s acceptance of their expert’s valuation of $87,000. On the basis of these circumstances, the Court awarded damages to Bhasin in the amount of $87,000.